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This Dollar Store Is Improving Its Prospects With Intelligent Moves

September 27, 2014 | About:

Dollar Tree (NASDAQ:DLTR) once again delivered impressive numbers. Its performance during the last quarter was mainly driven by strong growth in its traffic and average ticket leading better show in almost all of its stores in both of its basic consumable and discretionary products. Its comparable stores sales grew 4.5% during the quarter on the back of appealing products offered by the merchants that exceeded customer’s expectations.

The Chesapeake, Virginia-based company reported revenue of $2.03 billion, an increase of 10% as compared to $1.85 billion in the second-quarter a year earlier, beating the consensus estimates of $2.01 billion for the quarter. However, its net income of $121.5 million or earnings of $0.59 per share came slightly below the net income of $124.7 million or earnings of $0.56 per share in the year ago quarter. Excluding the acquisition related costs to the proposed merger with Family Dollar Stores its net income increased to $126.1 million or earnings of $0.61 per share. The analysts were expecting earnings of $0.65 per share for the quarter.

The road forward is exciting

Looking forward the company remains very promising as it continues to focus on the three essential areas such as customer, persistent growth and enhanced profitability. The company remains on track to drive its growth by opening new stores and through enhanced productivity. It is strategically planning to develop new formats, new markets and new channels that should become its growth vehicles in the future. Dollar Tree has opened approximately 90 new stores and upgraded or relocated nearly 20 existing stores.

The company plans to remodel and relocate about 110 stores. Dollar tree is progressing well against its objective of opening around 375 new stores and upgrading and relocating of 75 existing stores out of 450 in the United States and Canada this year. If it manages to do this its total square footage will increase to 7% year on year basis that will indeed drive its profitability. The company enjoys the benefit from the total of 5,166 stores across United Stores and Canada.

Alongside, the company remains on track to boost the store productivity through various smart moves such as category expansions, chunky display, enlarge assortments in pet supplies, hardware, health, beauty and eyewear as well as home and household products. Dollar Tree is also planning to enlarge its frozen and refrigerated category this quarter. The company during the second-quarter installed freezers and coolers in 141 extra stores, taking its toll to 3,410 stores and has a concrete plan to further grow its refrigerated offerings.

Meanwhile Dollar Tree has re-launched its various marketing initiatives and campaigns such as ‘See what $20 Buys along with its Stretch Your Dollar Campaigns through in-store promotions, signing and digital media that have resulted in a positive sales so far. These smart moves should advance its chances of growth and better leverage its product portfolio, creating a competitive advantage over its peers such as General Dollar (DG) and Family Dollar (FDO).

Also, the company should benefit from the likely acquisition of Family Dollar (NYSE: FDO), who has rejected the high bid of $8.9 billion offered by Dollar General (DG) and opted to stick with an earlier $8.5 billion offer from Dollar Tree, due to various antitrust issues. This potential acquisition should increase its market presence and drive its top as well as bottom line growth margins in the future and deliver significant returns to its shareholders. If Dollar tree makes it count, the total stores for the company will accelerate to 13,000, crossways 48 states that will boost its joint-venture sales approximately $18 billion. Moreover, this acquisition could result in about $300 million in cash synergies and will certainly enhance its bottom line base.

Expanding its product portfolio

Dollar Tree remains well on track to continue expand its product portfolio, including Deal$ and Dollar Tree Canada. The company sees potential growth prospects with its Deal$ brand with a lot of room in the category to expand further that should drive the performance of overall unit. Deal$ currently has low price everyday essential products such as party goods, seasonal and home product. Also, it produces higher ticket as it has rich consumable mix along with multiple price point strategy that continues to drive its performance. Dollar tree opened approximately 216 new Deal$ stores and inaugurated nearly 7 new Dollar Tree Canadian stores during the second-quarter. The company plans to invest in the expansion of these stores in Canada going forward.

The company continues to see massive potential for growth in Canada. It strongly believes that the Canadian market can support up to 1,000 stores, which is in addition to the 7,000 store potential for Dollar Tree in the United States plus additional growth in our Deal$ brand. It also plans to sell its product in the region with the single price point of $1.25, similar to the $1 price point in the United States.

Ending remarks and valuation

Dollar tree looks a prosperous stock to invest in as the stock is carrying a better CAGR growth in comparison with its peers like Dollar General and Family Dollar. The analysts have estimated CAGR of 15.53% for Dollar tree, whereas Dollar General and Family Dollar have CAGR of 14.62% and 4.07% respectively for the next five years. In fact the big giant such as Wal-Mart Stores (WMT) has CAGR of just 7.03% for the next five years that highlights the potential growth prospects for Dollar Tree in the coming years.

Moreover, the stock is currently being traded at a trailing P/E multiple of 20.23 and forward P/E multiple of 16.22 indicate sound valuations for the stock, indicating a brighter future.

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